Judy Ford and Patricia Ann Williamson v. James R. Dye

ARKANSAS COURT OF APPEALS

SAM BIRD, JUDGE

NOT DESIGNATED FOR PUBLICATION

DIVISION IV

JUDY FORD and PATRICIA ANN WILLIAMSON,

APPELLANTS

V.

JAMES R. DYE,

APPELLEE

CA00-346

NOVEMBER 15, 2000

APPEAL FROM THE ASHLEY COUNTY CHANCERY COURT,

NO. E98-309-2,

HON. JERRY E. MAZZANTI,

CHANCERY JUDGE

AFFIRMED

Judy Ford and Patricia Ann Williamson appeal an unfavorable judgment on their suit for rescission of a contract for the sale of a house. For reversal, they argue that the chancellor erred: (1) in finding that they had failed to establish the elements of fraud as to all the defendants; (2) in requiring them to establish actual fraud instead of considering constructive fraud; and (3) in finding that they had elected to seek the exclusive remedy of rescission and had failed to plead alternative remedies. We affirm.

On January 27, 1998, Ford and Williamson1 filed suit against appellees James R. Dye and Betty Dye, his wife; Pauline Lochala, the real-estate agent; and John W. Spivey, a real-estate broker and the owner of Ashley Realty Company. Ford claimed that she purchased

a house from the Dyes through real-estate agent Pauline Lochala, and that after she moved into the house, she discovered numerous latent material defects that she claims the Dyes were aware of but had failed to disclose.

The evidence at trial showed that the Dyes' home in Hamburg was seventy to ninety years old. Ford testified that she was forty-seven years old, a widow, and had sold her previous house in Eureka Springs the same day she purchased the Dyes' house. She stated that before making an offer on the Dye house, she inspected it three times for approximately fifteen minutes each time. She said that during the first inspection she looked into the rooms and walked around the outside of house and did not see anything wrong with it. She said both James Dye and Pauline Lochala told her that everything was "in good shape." She testified that when she asked Lochala about a hump in the floor, Lochala responded, "I don't think you have a problem." Ford said that during the second inspection, Lochala told her that she had talked to Wilbur Austin about an inspection and that he had looked under the house and "what he could see was good." Ford said James Dye told her that the roof, the plumbing, and the floor were in good shape, and she could probably use the fireplace, but he advised her to have it cleaned first. Ford also stated that she did not see the owners' disclosure form that the Dyes had provided to Lochala until after she had employed an attorney to file suit. At closing, Ford paid cash for the house.

While living in the house, Ford discovered rotten sills, holes in the floor, a leaking roof, plumbing problems, and cracks in the chimney. She also found that the house was builtvery close to the ground.

Among the things that Ford found that she claimed had been misrepresented or fraudulently concealed from her was a hole in the floor of the living room in front of the fireplace that had been covered with carpet. In several places the wood framing of the house was rotten, particularly the wood nearest the ground, and, when it rained, water ran under the house and pooled around the house where it stood for several hours. A two-by-four on the back porch was rotten and had been painted. Ford testified that when she saw the house, the fireplace opening was covered with four sheets of plastic and a fireplace screen. Because she wanted to use the fireplace, she took the plastic off and discovered that bricks were falling out of the fireplace. Ford said that the bedroom floor was so rotten that she fell through it all the way to the ground underneath, but that when she inspected the house there was furniture covering over the area through which she fell. On cross-examination Ford admitted that she had said in her deposition that she did not believe the Dyes had made any statements to her that were false.

Wilbur Austin testified that he has been a termite and pest control specialist and a licensed termite inspector for more than twenty years and had attempted to inspect the Dye house. He said he could only inspect about twenty percent of the under-side of the house because the house was too close to the ground in which to crawl. He said that of the portion of the house he could inspect, he saw no signs of termites. Austin also testified that there was extensive moisture damage to the sills and floor joists, they had mold and mildew on them, and the center sill of the house was touching the ground. He said that when he got outfrom under the house, he told James Dye, and later told Pauline Lochala, that the house had considerable moisture damage to the foundation, that the crawl space was too small to get into, that he could not give the house a termite clearance, and that there would need to be extensive work done to bring the house up to standard.

Lochala testified that she was a partner in Ashley Realty Company and that she has been a real-estate agent in Ashley County for twenty to twenty-five years. She said she was the listing agent for the Dyes' home and was the agent of the Dyes in the transaction, but that she had not explained this to Ford in detail. She also said she filled out the information sheet for the house when the Dyes listed it, but that she did not recall giving Ford a copy of it. She said that on the occasions she looked at the house, she saw no defects in the chimney, the floors, ceiling, or the porch; and she admitted that there was no reason that Ford should have seen any such defects. She said that there was siding on the outside walls of the house and carpet on the floors, and that the Dyes had not advised her of any defects in the house. She testified that from the sellers' disclosure form that the Dyes had filled out, she was aware before the sale of the possibility of termite infestation in the patio area. However, she admitted that she did not give Ford a copy of the disclosure statement and did not tell Ford about the possibility of termite infestation on the patio. Lochala admitted that it was her responsibility to see to it that the buyer got the disclosure form and that she was unable to say why she did not do so. She pointed out that the offer-and-acceptance form and the contract were prepared by her real-estate agency and clearly stated that the buyer accepted the property "as is." She insisted that she had explained the contract to Ford, but she lateradmitted that she had not gone into word-for-word detail.

Tom Akin, a carpenter, testified that he had been doing carpentry work for fifty years, had inspected the Dye/Ford house in 1998, and had prepared an estimate of the cost of the needed repairs. He said the floors were not level and some had "given way"; the floor, the sills, and some joists were rotted; and that one-half of the foundation of the house had rotted pretty bad. He stated, "There just isn't anything holding that end of the house up." He said that ground contact and wood "do not mix." According to Akin, the back part of the house was "as bad as they get," and the rot was caused by water being under the house. He estimated that to repair only the joists and floors would cost about $18,000 because it would require tearing out one section or room at a time and rebuilding the walls up to two feet. The house would also have to be jacked up and straightened. Akin said that it would cost an additional $10,000 to raise the house further away from the ground.

James Dye testified that he had purchased the house in May 1977. Over the years he had replaced the roof twice, and repaired or replaced the insulation, paneling, carpet, siding, and ceiling. He said in 1979 a tornado blew off some of the roof, and it rained in and pooled. Consequently, they had water damage in the living room area, and it deteriorated after a few years. He replaced the floor in the living room in 1995. He denied that water stood under the house; he said, "It just runs under it." He admitted that he knew water stood around the outside of the house after a heavy rain for four or five hours, and that he had answered, "no," where the owner disclosure form asked whether there had been any flooding, draining, or grading problems, and whether water had ever stood on the propertyor under any improvement or construction on the property. Dye admitted that he also answered, "no," to questions about termite damage and roof problems, and he admitted that he knew there was a possibility of termite damage. He explained that he thought the questions meant recurring problems. "[I]t don't just mean it leaks a couple of times, it means it keeps on leaking." In spite of all these repairs, Dye insisted that as far as he was aware, there were no defects in the property.

Justin Pennington, a building contractor and carpenter, testified that he had inspected the house and found the following damage: the kitchen cabinets had sunk two to three inches; there were soft or rotten spots in the floor throughout the house; the outside sills and some floor joists were gone; and the trusses on the north end and center were weak. To repair the house, he said, would require replacing the damaged wood, and would cost no less than $15,000.

Betty Dye testified that for twenty years she had seen water standing around the house after a large rain and that she knew there was a crack in the chimney. She also knew her husband had filled out the owner disclosure form, that he had marked, "no," to the question about standing water, and that he had painted over a water stain in the bedroom ceiling. However, she denied any awareness of the hump in the kitchen floor, weakness in the floors throughout the house, or any awareness of the floor joists being rotten, and she denied making any false statements to Ford.

John Spivey testified that he had discussed the condition of the home with the Dyes. He said their disclosure form revealed a possible termite problem on the patio and that thepaint on the outside of the house was of unknown content. He admitted that it was the responsibility of his agency to provide the buyer with the owner disclosure form. He said that if he had known that Austin had only inspected twenty percent of the house, he would have informed Ford of that fact. He said there was little explanation of the real-estate contract at the closing because the closing was done so hastily, which he attributed to Ford's rush to get back to her job in Eureka Springs. Spivey admitted that he got the disclosure form for the house in June, that Ford's offer and acceptance was dated August 28, 1997, and that the closing occurred on September 6, 1997, but he never gave Ford the disclosure form. He said, "It was an honest mistake."

The real-estate contract Ford signed contains the words "as is," and a buyer's disclaimer of reliance, which states:

BUYER'S DISCLAIMER OF RELIANCE: BUYER CERTIFIES THAT BUYER HAS PERSONALLY INSPECTED THE PROPERTY AS FULLY AS BUYER DESIRES AND IS NOT RELYING AND SHALL NOT HEREAFTER RELY UPON ANY WARRANTIES, REPRESENTATIONS OR STATEMENTS OF SELLER OR AGENT AS TO AGE, SIZE, QUALITY, VALUE OR CONDITION OF IMPROVEMENTS OR APPLIANCES OTHER THAN THOSE SPECIFIED HEREIN, IF ANY, WHETHER OR NOT DEFECTS MAY BE REASONABLY DISCOVERABLE BY BUYER.

Lochala testified for the defense that the real-estate agents never intended to deceive Ford. She said that it was obvious that the house was sitting close to the ground because the siding went all the way to the ground. She said you could not tell anything about the floors. On cross-examination, she said that she thought Ford would have bought the house even if she had been provided with a copy of the disclosure form. But, she said, if the Dyes hadinformed her that water stood around the house for several hours, she would have told Ford.

Instead of considering Ford's alternative prayer for relief, the chancellor treated the case solely as a demand for rescission based on fraud and held that Ford had not proven fraud by clear and convincing evidence. He said the case was complicated by the fact that Ford paid cash for the house, therefore not involving a lending institution that would have required, as a condition of a loan, a survey, appraisal, termite inspection, and title search. He noted that appellant had signed the contract with the disclaimer clause and the "as is" clause.

Ford's first argument challenges the chancellor's finding that she failed to establish the elements of actual fraud. Her second argument is that, even if she was not successful in proving actual fraud, the chancellor erred in not considering constructive fraud, which she maintains that she proved. While we review chancery cases de novo, we will not reverse the chancellor unless his findings are clearly erroneous or against a preponderance of the evidence. Ark. R. Civ. P. 52(a); Morgan v. Morgan, 8 Ark. App. 346, 652 S.W.2d 57 (1983). Since the question of the preponderance of the evidence turns largely on the credibility of the witnesses, we defer to the superior position of the chancellor to determine the weight and credibility to be given the testimony. Andres v. Andres, 1 Ark. App. 75, 613 S.W.2d 404 (1981). A finding will be held clearly erroneous when, although there is evidence to support it, the reviewing court is left with a definite and firm conviction that an error has been made. RAD-Razorback, Ltd. Partnership v. B.G. Coney Co., 289 Ark. 550, 713 S.W.2d 462 (1986).

To sustain her burden proving actual fraud, Ford was required to establish, by a preponderance of the evidence, the following elements of misrepresentation and fraud: (1) a false representation, usually of a material fact; (2) knowledge or belief on the part of the person making the representation that the representation is false or that there is not sufficient information to make such a representation; (3) an intent to induce the other party to act or refrain from acting in reliance upon the misrepresentation; (4) a justifiable reliance upon the representation by the other party in taking action thereon; and (5) resulting damages. Janssen v. McKimmey, 305 Ark. 360, 807 S.W.2d 920 (1991); Brookside Village Mobile Homes v. Meyers, 301 Ark. 139, 782 S.W.2d 365 (1990); McWilliams v. Zedlitz, 294 Ark. 336, 742 S.W.2d 929 (1988); Croley v. Baker, 237 Ark. 136, 371 S.W.2d 830 (1963).

Constructive fraud, on the other hand, while requiring proof of all the necessary elements of actual fraud, misrepresentation, and deceit, may be proven even when there is a complete absence of any moral wrong or evil intention. Roach v. Concord Boat Corp., 317 Ark. 474, 880 S.W.2d 305 (1994); Cardiac Thoracic & Vascular Surgery, P.A., Profit Sharing Trust v. Bond, 310 Ark. 798, 840 S.W.2d 188 (1992). In considering the existence of constructive fraud, representations are construed as fraudulent when they are made by someone who, unaware of their falsity, asserts them to be true. South County, Inc. v. First Western Loan Co., 315 Ark. 722, 871 S.W.2d 325 (1994); Bond, supra. Neither actual dishonesty of purpose nor intent to deceive is an essential element of constructive fraud. See RLI Ins. Co. v. Coe, 306 Ark. 337, 813 S.W.2d 783 (1991). To rescind a contract based on fraud, it is not necessary that actual fraud exist; it is sufficient if constructive fraud exists.Roach, supra. However, in either case, it is necessary that a material misrepresentation of fact be made. South County, Inc. v. First Western Loan Co., 315 Ark. 722, 871 S.W.2d 325 (1994).

The chancellor denied Ford's prayer for rescission, explaining his decision in findings that were incorporated into the final order. He found that the house was more than fifty years old and that there were no express or implied warranties. He stated that the Dyes were under no obligation to fully and closely examine the property and relay what was found to the prospective purchaser. The vendor's only obligation is to answer any questions to the best of his or her knowledge. The chancellor said Ford had failed to prove that the Dyes had actual knowledge of the rotten sills and floor joists; that Ford had the right to have the house inspected and appraised, which a reasonable prudent person would do, and an inspection would have revealed the faulty sills and floor joists; and that Ford knew she could not get a contract for termite protection on the house. The chancellor noted that James Dye testified that he had replaced the roof only two years before the sale, and that it was not leaking when the house was sold; that he knew water ran under the house and pooled around the house when it rained, but there was not any water standing around or under the house on a permanent basis; that he had not used the fireplace in twelve to fifteen years, it was working when they last used it; and that he was unaware that the bricks were loose. The chancellor's findings that Ford failed to prove that the defendants had committed actual fraud or constructive fraud are not clearly erroneous. Neither are we left with a definite and firm conviction that an error has been made.

It seems to be Ford's argument that Ashley Realty Company committed fraud when it did not provide Ford with the seller's disclosure statement that mentioned the "possibility" of termites in the patio area and stated that it was "unknown" whether the exterior paint beneath the siding was lead-based. From the evidence, we cannot conclude that either of these disclosures are false. There was no evidence that the patio, or any part of the house, was infested with termites. Although Wilbur Austin testified that he had told Mr. Dye and Ms. Lochala that he could not issue a termite clearance letter, his decision was based on the fact that the house was too close to, or touching, the ground, not because he had discovered any termites. Lochala testified that she told Ford of Austin's conclusion that a termite clearance letter could not be issued for the house, and the chancellor specifically found that Ford knew that a termite letter could not be issued. From the evidence it is apparent that the proximity of the house to the ground was obvious to anyone viewing it. Likewise, there was no proof that the Dyes knew that the house's exterior paint beneath the siding was lead based when they stated that the status of the exterior paint was "unknown." There is no evidence that Ford ever inquired of the Dyes or any agent of Ashley Realty Company whether the house had termites or whether the exterior paint was lead based. Thus the failure of Ashley Realty Company to provide Ford with the seller's disclosure statement is of no consequence.

Since the chancellor concluded that no material misrepresentations of fact had been made to Ford, a conclusion that we do not find to be clearly erroneous, it necessarily follows that the chancellor did not err in refusing to consider whether Ford could recover under atheory of constructive fraud.

Finally, Ford argues that the chancellor erred in considering only the remedy of rescission, rather than the alternative remedy of damages for breach of contract. However, the allegations in her complaint that Ford relies on as the basis of her breach-of-contract claim are the same as the basis of her fraud claim, i.e., that because the house was defective, she has sustained damages in the form of expenses to repair it and in the difference in the value of the house as represented by the Dyes and the actual value of the house at the time of the purchase. Because of our holding that the chancellor's conclusion that Ford failed to prove a false representation is not clearly erroneous, it is axiomatic that she must also fail on her claim for breach of contract.

However, we note that the chancellor was incorrect in stating that when Ford transferred a case to chancery court from circuit court, she abandoned her plea for damages. A court of chancery or equity may obtain jurisdiction over matters not normally within its purview pursuant to the clean-up doctrine, and, under our long-recognized rule, once a chancery court acquires jurisdiction for one purpose, it may decide all other issues. Douthitt v. Douthitt, 326 Ark. 372, 930 S.W.2d 371 (1996); Pryor v. Hot Spring County Chancery Court, 303 Ark. 630, 799 S.W.2d 524 (1990). In Liles v. Liles, 289 Ark. 159, 711 S.W.2d 447 (1986), the Arkansas Supreme Court established a test for determining when a chancery court's jurisdiction over a legal claim pursuant to the clean-up doctrine is proper. The court wrote:

[W]e have come to the position that unless the chancery court has no tenablenexus whatever to the claim in question we will consider the matter of whether the claim should have been heard there to be one of propriety rather than one of subject matter jurisdiction.

Id. at 175-76, 711 S.W.2d at 456. See also Bright v. Gass, 38 Ark. App. 71, 831 S.W.2d 149 (1992).

Affirmed.

Robbins, C.J., and Neal, J., agree.

1 Although Patricia Ann Williamson's name is contained in the abstract as a plaintiff in the trial court and as an appellant in this appeal, the abstract does not reveal what involvement she had in the events surrounding this case.